Australian gas is being shipped and sold to wholesale customers in Japan for 40% less than it is sold to Australian customers, despite the extra costs of liquefying and shipping the gas there.
The commitment to exporting Australian gas has left fewer companies selling gas to the Australian market, meaning both retail and wholesale gas prices have risen sharply, pushing up local electricity prices up too.
Those price rises are a result of a lack of competition and cartel-like behaviour, not any shortage of actual gas supply, according to finance and energy analyst Bruce Robertson from the Institute for Energy Economics and Financial Analysis.
The analysis comes just ahead of a meeting of state and federal energy ministers at the Coag Energy Council on Friday.
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Since May, the wholesale price of gas on the east coast of Australia overtook the price of gas in Japan. But because of long-term contracts signed by Santos, Shell and Origin Energy, the companies have been obliged to continue exporting to overseas markets, including Japan.
“Bearing in mind the high costs of transport and liquefaction, it makes no sense that Australian gas should be cheaper in Japan, one of the highest-cost markets in the world. Australian consumers would be correct to question why this is the case,” said Robertson.
Robertson said all the available evidence suggested there was no shortage of gas locally but there was a severe lack of competition, he said.
Gas companies are not obliged to release information about the capacity or production of their wells, so Robertson pointed to public statements about their supply levels.
In 2012, for example, BHP Billiton’s petroleum chief Mike Yeager was reported as saying that they had so much gas supply in eastern Australia they could supply those areas “indefinitely”. The comments were made when gas use was forecast to grow, and since then it has declined. Robertson said that means Australia must be “swimming in gas” supply.
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He said the remaining major players controlling the domestic market – BHP Billiton and ExxonMobil – were then allowed to cooperate in “joint marketing ventures,” which Robertson said could be compared to a legalised cartel.
The lack of competition in the east-coast gas market was examined by the Australian Competition and Consumer Commission (ACCC) in April. The commission released the results of the inquiry and chairman Rod Sims said: “There are currently very few constraints on monopoly pricing by pipeline operators.”
Since recent spikes in the price of electricity have been blamed on the rising price of gas, the new federal minister for the environment and energy, Josh Frydenberg, indicated more gas was needed in Australia. “We need more gas supply and more gas supplies in Australia, and gas is an important part of the energy mix,” Frydenberg told ABC’s Lateline.
Robertson said since the price hikes are a result of low competition rather than low supply, opening up new supplies that are owned by the same companies controlling current supply would do nothing to lower prices.
But with little public information about gas supplies, Robertson said it was impossible for policymakers to make informed decisions about the supply of gas.
“You have policymakers suggesting policy responses to a problem they can’t see the dimensions of. And that’s a very dangerous situation.”
That lack of available information was also highlighted by the ACCC’s inquiry in April. “The lack of consistent, publicly available data on the sector is an impediment to participants, investors and policymakers,” Sims said.
Robertson said he was concerned that without more information the wrong decisions would be made at the Coag Energy Council meeting on Friday. “They’ve set the agenda for more gas production and that ain’t the solution,” he said.
Robertson was critical of the ACCC’s report for recommending more gas supply be opened up, since that report itself pointed out there was a lack of information about current levels of supply.
“It’s appalling they suggest that solution when they have no bloody idea of the productive capacity of existing wells,” said Robertson.